Aussie rally pauses ahead of RBA

The Australian dollar is in negative territory on Monday, after flexing some muscle last week. AUD/USD is trading at 0.7430, down 0.35% on the day. The currency shot up 1.94% last week, as investor appetite for risk improved, which was bullish for minor currencies like the Australian dollar.

US Nonfarm payroll misses badly

The Australian dollar ended the week on a high note, with strong gains of 0.75%. This was in response to a shocker from US nonfarm payrolls on Friday, which added just 235 thousand jobs. The consensus was around 750 thousand jobs and some analysts were even calling for a print north of the 1 million mark.

The soft NFP reading effectively put on hold any expectations that the Federal Reserve would signal tapering at its policy meeting later this month, and that has weighed on the US dollar. The Aussie has reversed directions on Monday, but I would not read too much into that, as US markets are closed for Labour Day, and liquidity is thin, which could account for the US dollar bouncing back on Monday after a poor showing last week.

Will RBA delay tapering?

The RBA holds a policy meeting on Tuesday, and the markets will be keeping a close eye on what the central bank decides with regard to a planned taper. At the August meeting, policy makers adhered to plans to taper weekly bond purchases from AUD 5 billion to AUD 4 billion. Since then, the economy has taken a hit from prolonged lockdowns due to the Delta variant of Covid-19, and GDP in the third quarter may have contracted by as much as 3%.

The big question is will the RBA feel that a taper is warranted, given that economic conditions are not all that favorable. If the central bank says that it will begin a taper next month, the Australian dollar could respond with strong gains.

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AUD/USD Technical

• There are resistance lines at 0.7534 and 0.7597
• The first line of support is at 0.7331, followed by 0.7211

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